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NAME: M.Razee Qureshi Class: TYBms B Elective: Human resource Topic: A study on why companies should go for outsourcing

Introduction Outsourcing is defined in this study as the organizational practice of contracting for services from an external entity while retaining control over assets and oversight of the services being outsourced. The practice of contracting for, or outsourcing, services by industry and government is not new. The federal government, for example, has contracted with the private sector for facilities acquisition services, including planning, design, and construction services, for more than a century. In the 1980s, however, a number of factors led to a renewed interest in and emphasis on

outsourcing. For private-sector organizations, outsourcing was identified as a strategic component of business-process “reengineering” designed to streamline their organizations and increase their profitability. In the public sector, growing concern about the federal government's budget deficit, the continuing, long-term fiscal crisis for some large cities, and other factors led to efforts to restrain the growth of government expenditures and accelerated the use of a wide range of privatization 1measures, including outsourcing for services (Seidenstat, 1999). management, time, and staffing constraints. The goal of reengineering is to increase profitability by becoming more competitive and significantly improving critical areas of performance, such as quality, cost, delivery time, and customer service. The underlying premises of reengineering are: (1) the essential areas of expertise, or core competencies, of an organization should be limited to a few activities that are central to its

current focus and future success, or bottom line; and (2) because managerial time and resources are limited, they should be focused on the organization's core competencies. The purpose of reengineering, then, is to streamline organizations by focusing on the core competencies required for them to compete successfully in the marketplace. Additional functions may be retained by the organization, or in-house, to keep competitors from learning, taking over, eroding, or bypassing the organization's core competencies (Pint and Baldwin, 1997). For private sector organizations, core competencies may be skills that are: (1) difficult to duplicate; (2) create a unique value; (3) constitute the organization's competitive advantage (i.e., what it does better than anyone else). Core competencies have been also been defined as a “bundle of skills and technologies

that enable a company to provide a particular benefit to customers” (Hamel and Prahalad, 1994). For example, at SONY, the benefit is “pocketability, and the core competence is miniaturization,” whereas at Federal Express, the benefit is on-time delivery, and the core competence is logistics management (Hamel and Prahalad, 1994). As part of business-process reengineering, support services required by the organization that are not core competencies can be outsourced to external organizations that specialize in those services. Ideally, by outsourcing noncore functions, an organization receives the best value or best performance for the resources expended. Surveys by the Outsourcing Institute (1998) have found that private-sector organizations outsource functions for the following primary reasons: 

Improving organizational focus. By outsourcing noncore activities or operational details to an outside expert, an organization can focus its in-house resources on the development and enhancement of its core competencies.

Gaining access to world-class capabilities. By partnering with an outside entity that has access to new technologies, tools, and techniques, an organization can gain a competitive advantage without making a substantial capital investment.

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 Sharing risks. In an environment of rapidly changing markets, regulations, financial conditions, and technologies, an organization can reduce risks by sharing them with external entities.

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Reducing and controlling operating costs. By contracting with a provider that can achieve economies of scale or other cost advantages based on specialization, an organization can

reduce and control its operating expenses.

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Accelerating reengineering benefits. By outsourcing a process to an external entity that has already reengineered its business processes to world-class standards and that can guarantee the improvements and assume the risks of reengineering, an organization can realize the benefits of reengineering in less time. Shifting capital funds to core business areas. By reducing the need to invest in capital (building) projects or technologies by outsourcing for them, an organization can redirect capital funds to its core business activities.

Smoothing out workloads/matching personnel to the volume of work. At

times of peak business activity, an organization can contract for personnel and other resources to handle peak or unique workloads and to meet the demands of multiple projects or shifting workloads and reduce the disruptions and costs associated with hiring and then laying off “permanent” staff.